Uses of PAN Card: Essential Guide for Financial Transactions

PAN, or permanent account number, is a specific 10-digit alphanumeric identifier assigned to each taxpayer by the Income Tax Department and overseen by the Central Board of Direct Taxes. 

It also functions as identification verification. PAN is required for financial activities such as earning taxable pay or professional fees, selling or buying assets above defined limitations, purchasing mutual funds, and so forth.

The fundamental goal of PAN is to establish a global identifying key to track monetary transactions that may have taxable components to avoid tax evasion. The PAN number is unaffected by a change of location throughout India. 

This blog explores the main uses of PAN card, highlighting its role in income tax purposes, financial transactions, business activities, and international dealings. 

Benefits of Having a PAN Card

Having a PAN card offers several benefits, especially when it comes to financial transactions. Here are some key advantages:

1. Simplified Tax Filing: A PAN card simplifies the process of filing income tax returns. It serves as a reference for all your financial transactions.
2. Avoiding Tax Deduction at Higher Rates: Without a PAN, tax is deducted at a higher rate. Providing your PAN ensures tax is deducted at the standard rate.
3. Easy Loan Approvals: A PAN card makes it easier to get loans approved as it provides a reliable financial history.
4. Tracking Investments: It helps track your investments and ensures you pay the correct amount of tax on gains.
5. Minor’s additional Proof of Birth: People can apply for a Minor PAN card for their children. It not only acts as an identity card for the child, it enables minors to be nominees for shares, properties, or financial assets.

PAN Card for Income Tax Purposes: Filing Returns and Avoiding Penalties

The Permanent Account Number (PAN) card is essential for every taxpayer in India. Issued by the Income Tax Department, it serves as a unique identification number for individuals and entities. Let's dive into the uses of PAN card in tax-related tasks, how it aids in filing tax returns, and the penalties for non-compliance.

Why is Having a PAN Card so Important? 

A PAN card is crucial for various financial transactions. It helps track all financial activities of a person or entity, ensuring transparency and preventing tax evasion. Here are some key reasons why having a PAN card is essential:

1. Income Tax Returns (ITR): You need a PAN card to file income tax returns. It links all your financial transactions, making it easier for the tax department to track your income.
2. Banking Transactions: PAN is required for opening a bank account, applying for a credit or debit card, and for transactions above a certain limit.
3. Loans and Credit: When applying for loans, whether personal, home, or vehicle loans, banks and financial institutions require your PAN card.
4. Investments: For investments in securities, mutual funds, and fixed deposits exceeding Rs. 50,000, a PAN card is mandatory.
5. High-Value Purchases: For purchasing assets like property or jewellery above a certain value, you must quote your PAN.

Filing Income Tax Returns with a PAN Card

Filing income tax returns is an annual obligation for taxpayers. Here’s a step-by-step guide on how to file your returns using a PAN card:

1. Gather Documents: Collect all necessary documents, including your PAN card, Form 16 (for salaried individuals), bank statements, investment proofs, and details of other income sources.
2. Register on the Income Tax Portal: Visit the Income Tax Department's e-filing portal and register using your PAN. The PAN serves as your user ID.
3. Choose the Right Form: Select the appropriate ITR form based on your income sources. For example, ITR-1 is for salaried individuals, while ITR-4 is for those with business income.
4. Fill in the Details: Enter your personal details, income details, and tax deductions accurately. Ensure the information matches your PAN card and other documents.
5. Go for Tax Calculation: The portal helps you calculate your tax liability. If you have paid excess tax, you can claim a refund. If there is a shortfall, you need to pay the balance.
6. Verify and Submit: Verify the details and submit the return. You can verify it electronically using Aadhaar OTP, net banking, or by sending a signed physical copy of the acknowledgement to the Centralised Processing Center (CPC).

Avoiding Penalties

Non-compliance with Income Tax regulations can result in severe penalties. Here are common pitfalls and how to avoid them:

1. Late Filing: If you miss the due date for filing returns (usually July 31st), you can still file a belated return by December 31st. However, a late fee of up to Rs. 10,000 may apply.
2. Incorrect Information: Providing incorrect details in your ITR can attract a penalty. Always double-check your entries, especially your PAN card number, income details, and tax deductions.
3. Tax Evasion: Deliberately concealing income or providing false information can lead to hefty fines and even prosecution. The penalty can range from 100% to 300% of the tax evaded.
4. Non-Filing of Returns: If your income exceeds the taxable limit and you fail to file returns, you may face a penalty of up to Rs. 5,000.
5. Failure to Pay Tax: If you do not pay the full tax due, interest will accrue on the unpaid amount. This can significantly increase your tax liability over time.

PAN Card for Financial Transactions: Banking, Investments, and Property

Whether you're opening a bank account, investing in stocks, or buying property, a PAN card is indispensable. Let’s explore the uses of PAN card in financial transactions: 

PAN Card in Banking

When you open a bank account, a PAN card is one of the most important documents you'll need. Banks use your PAN to track your financial transactions and ensure they comply with tax regulations. Here are some key points about the role of a PAN card in banking:

1. Account Opening: You must provide your PAN card when opening a savings, current, or fixed deposit account.
2. Cash Deposits and Withdrawals: PAN is required for cash deposits exceeding Rs. 50,000 in a single day and for withdrawals above this amount.
3. Loans and Credit Cards: When applying for loans or credit cards, banks will ask for your PAN to assess your creditworthiness and financial history.
4. Interest Earnings: PAN is necessary to track interest earnings on savings accounts and fixed deposits, ensuring the correct amount of tax is deducted at source.

PAN Card in Investments

A PAN card is crucial for various investment activities. It helps the government track investments and ensures that taxes on gains are properly paid. Here’s how a PAN card is used in different types of investments:

1. Stock Market Investments: You need a PAN to open a Demat account, which holds your shares electronically. It is also required for trading in the stock market.
2. Mutual Funds: When investing in mutual funds, a PAN card is mandatory for transactions exceeding Rs. 50,000. It helps in tracking your investments and capital gains.
3. Bonds and Debentures: If you invest in bonds or debentures, you'll need to provide your PAN. This helps in tracking the interest income and ensures proper tax deductions.
4. Gold Investments: When buying gold worth over Rs. 2 lakh, a PAN card is required. This measure helps prevent tax evasion and ensures transparency in high-value transactions.

PAN Card in Property Transactions

Buying or selling property involves significant financial transactions. The PAN card plays a critical role in ensuring transparency and preventing tax evasion in real estate dealings. Here are the uses of PAN card in it:

1. Property Purchase: When purchasing property valued at Rs. 10 lakh or more, you must provide your PAN. This rule applies to both residential and commercial properties.
2. Property Sale: If you are selling a property, you must quote your PAN in the sale deed. This helps track the capital gains from the sale and ensures the appropriate taxes are paid.
3. Home Loans: When applying for a home loan, banks require your PAN to assess your financial background and creditworthiness.
4. Rent Agreements: For rent agreements where the annual rent exceeds Rs. 1 lakh, both the tenant and landlord must provide their PAN cards.

PAN Card for Business and Professional Activities: GST Registration and Compliance

For businesses, having a PAN card is crucial for several reasons:

1. Tax Filing: A PAN card is required for filing income tax returns. It ensures that the tax records of the business are accurately maintained.
2. Financial Transactions: Banks and financial institutions require a PAN card for opening business accounts and processing large transactions.
3. Compliance: The PAN card helps businesses comply with various tax regulations and avoid penalties.
4. Verification: It serves as a proof of identity for businesses, helping in various verifications and legal formalities.

GST Registration and PAN Card

GST is a comprehensive indirect tax that the government levies on the sale, manufacture, and consumption of various goods and services. GST registration is mandatory for businesses exceeding a certain turnover threshold. A PAN card is a prerequisite for GST registration.

Steps for GST Registration Using PAN Card

1. Obtain PAN Card: Ensure that the business has a valid PAN card.
2. Visit GST Portal: Go to the official GST portal (www.gst.gov.in).
3. Fill Application: Complete the GST registration application form, providing the PAN details.
4. Submit Documents: Upload required documents, including the PAN card, proof of business registration, and identity and address proof of the business owner.
5. Verification: The GST portal will verify the details, and once approved, a GSTIN (GST Identification Number) is issued.

GST Compliance and PAN Card

After obtaining GST registration, maintaining compliance is critical. The PAN card plays a significant role in this process.

Key Areas of GST Compliance

1. Monthly and Quarterly Returns: Businesses must file GST returns monthly or quarterly, depending on their turnover. The PAN card is essential for this process.
2. Annual Returns: An annual return summarising the year’s transactions must be filed, with PAN details being a crucial part of the documentation.
3. Input Tax Credit: Businesses can claim input tax credit on their purchases, and the PAN card helps track and verify these claims.
4. E-Way Bills: For transporting goods above a certain value, generating an e-way bill is mandatory. PAN details are required for this.
5. Tax Payments: All GST payments are linked to the PAN card, ensuring that tax payments are tracked and credited accurately.

Benefits of GST Compliance

Staying compliant with GST regulations offers several benefits to businesses:

1. Avoid Penalties: Regular and accurate filing of returns helps avoid hefty penalties.
2. Improved Credibility: GST-compliant businesses have better credibility and trust among customers and suppliers.
3. Input Tax Credit: Proper compliance ensures seamless claiming of input tax credit, reducing the overall tax burden.
4. Business Growth: Compliance with GST rules can lead to smoother operations and business growth.

PAN Card for International Transactions: Foreign Remittances and Forex 

Foreign remittances refer to the transfer of money from one country to another. This can be for various reasons like family support, education, or investments. For any Indian resident sending or receiving money internationally, a PAN card plays a crucial role.

Why is a PAN Card Required?

1. Regulatory Compliance: The Reserve Bank of India (RBI) mandates the use of a PAN card for all foreign remittances to maintain transparency and track taxable transactions.
2. Tax Deductions: The PAN card helps in identifying the individual or entity involved, ensuring that proper tax is deducted at the source, if applicable.
3. Bank Procedures: Banks and financial institutions require a PAN card to process international money transfers. It is used to verify the identity of the person and ensure that the transaction complies with legal standards.

Forex Transactions

Forex, or foreign exchange, involves the trading of currencies. It’s a massive market where traders buy and sell currencies to make profits. For Indians to participate in forex trading, having a PAN card is essential.

Importance of PAN Card in Forex Trading

1. KYC Norms: Know Your Customer (KYC) norms are stringent in forex trading. A PAN card is a primary document used for KYC verification, ensuring the trader’s identity is authenticated.
2. Taxation: Profits earned from forex trading are subject to taxes. A PAN card helps in tracking these earnings and ensures the trader complies with tax regulations.
3. Transaction Limits: The RBI sets limits on the amount of money an individual can transfer or trade in forex annually. The PAN card helps in monitoring these transactions to ensure they do not exceed the prescribed limits.

How to Use PAN Card for International Transactions

Using a PAN card for international transactions involves several steps:

1. Providing PAN Details: When initiating a foreign remittance or a forex trade, the individual must provide their PAN card details to the bank or financial institution.
2. Verification: The bank or institution verifies the PAN details against their records and the database maintained by the Income Tax Department.
3. Processing the Transaction: Once verified, the transaction is processed. The PAN card ensures that the transaction is legitimate and complies with regulatory norms.

Benefits of Using a PAN Card

1. Transparency: The use of a PAN card ensures all transactions are transparent and traceable, reducing the chances of fraudulent activities.
2. Tax Compliance: It ensures that all international financial transactions are reported to the tax authorities, promoting tax compliance.
3. Ease of Transactions: With a PAN card, the process of conducting international transactions becomes simpler and more efficient.

Common Concerns

Despite its benefits, there are some concerns associated with using a PAN card for international transactions:

1. Some individuals worry about the privacy of their financial information. However, the stringent data protection laws in India ensure that PAN details are handled securely.
2. Mistakes in PAN details can lead to delays or rejection of transactions. It’s crucial to ensure that the PAN information provided is accurate and up-to-date.

Conclusion 

The uses of PAN cards are extensive and critical for both individuals and businesses in India. Whether you’re dealing with income tax filings, high-value purchases, foreign remittances, or forex trading, having a PAN card is indispensable. 

Protean plays a crucial role in helping people obtain a PAN card seamlessly. Through Protean's services, you can apply for a new PAN, correct or update existing PAN details, check the status of your application, or even download an ePAN. The user-friendly online platform makes the entire process efficient and hassle-free, catering to individuals, Hindu Undivided Families (HUFs), and businesses alike. 

Ready to take on your PAN card requirements? Taking steps now will save time and ensure that your financial transactions are smooth and controlled.

Looking for more information on PAN? Learn more here.

-Story by Kakoli Laha